This week eight Chinese banks asked a court to find Suntech subsidiary Wuxi Suntech insolvent and to allow it to begin restructuring. Suntech responded to the court and said it would not object. The New York Times reported that the bankruptcy is “expected to lead to a takeover of the Wuxi operations by Wuxi Guolian, a financial conglomerate controlled by the city government of Wuxi.”

The solar market has seen an oversupply of solar panels and plummeting prices for those panels for over two years now. Two thirds of solar cells are made in China, where the Chinese government has given Chinese solar makers access to large low cost loans. The oversupply and drop in prices has led to huge solar manufacturers like Q-Cells to startups like Solyndra and Abound Solar to file for bankruptcy.

Suntech solar panels

Suntech may be the largest to date, but it won’t be the last solar maker to crash. As MIT Tech Review put it earlier this week: “hundreds of solar companies need to fail to help bring the supply of solar panels back in line with demand.”

The weeding-out process will help slow the fall in solar panel prices and allow demand to rise back up again. Down the road the re-balancing will enable these companies to continue to invest in more efficient cells and new innovations, which will bring down the cost of solar through technology even more. Another 180 solar panel makers could reportedly disappear by 2015 due to consolidation.

At the same time, Suntech’s woes partly come from a financial scandal. The company got in trouble with a fund it controlled that financed solar power plant development in Europe.

The drama presents an ugly turn for a company that was solid and took technology and market risks to grow. . . Chinese companies in general had been known more as mass producers rather than innovators. . . Suntech’s decline also leaves a depressing note in the efforts by the federal and local governments to expand solar manufacturing in the U.S.